What do Rising Gold Prices Mean?

http://www.house.gov/paul/\ ^ | 12/05/05 | Rep. Ron Paul

[Capitalism2003]

December 5, 2005

The market price for an ounce of gold rose to over $500 last week, a significant milestone for economists watching precious metals and commodities markets. The last time gold topped $500 was December 1987, in the wake of the “Black Monday” stock market collapse earlier that fall.

Gold prices historically rise when faith in paper currencies erodes, as investors seek the intrinsic value of gold to protect themselves from inflation. It’s interesting to note that while the U.S. dollar has regained some of its value relative to other paper currencies like the Euro, it continues to lose value relative to gold and other hard assets. This shows the folly of using one fiat currency to value another.

Gold is history’s oldest and most stable currency. Central bankers and politicians don’t want a gold-backed currency system, because it denies them the power to create money out of thin air. Governments by their very nature want to expand, whether to finance military intervention abroad or a welfare state at home. Expansion costs money, and politicians don’t want spending limited to the amounts they can tax or borrow. This is precisely why central banks now manage all of the world’s major currencies.

Yet while politicians favor central bank control of money, history and the laws of economics are on the side of gold. Even though central banks try to mask their inflationary policies and suppress the price of gold by surreptitiously selling it, the gold markets always cut through the smokescreen eventually. Rising gold prices like we see today historically signify trouble for paper currencies, and the dollar is no exception.

President Nixon finally severed the last tenuous links between the dollar and gold in 1971. Since 1971, the Federal Reserve and U.S. Treasury have employed a pure fiat money system, meaning government can create money whenever it decrees simply by printing more dollars. The "value" of each newly minted dollar is determined by the faith of the public, the money supply, and the financial markets. In other words, fiat dollars have no intrinsic value.

What does this mean for you and your family? Since your dollars have no intrinsic value, they are subject to currency market fluctuations and ruinous government policies, especially Fed inflationary policies. Every time new dollars are printed and the money supply increases, your income and savings are worth less. Even as you save for retirement, the Fed is working against you. Inflation is nothing more than government counterfeiting by the Fed printing presses.

[T. Jefferson]

When was the low in Gold? 1999! Since the low in Gold in 1999 it has outperformed the Nas by 73%.

You're kidding right? He was comparing the decade low prices of two entities to the current price. The 1990's Nas low was 350, it's 700+% higher now. Do you really wanna compare 73% to 700%? What you're implying here is what most gold bug pumpers do. They claim to be able to buy the low, wait till a new high, then scream from the mountain tops. Nobody in the world can consistently predict the top or the bottom, and rear view mirror charting is for dreamers and liars. Whenever goldbugs say buy, it's a good short. Nice looking charts though.

[InterceptPoint]

Anticipation of INFLATION.

[Petronski]

...rear view mirror charting is for dreamers and liars.

Good old-fashioned goldbuggery.

[simon says what]

Five years is not just a random number in this case, it's also a best-case scenario. Run it from 10 or 20 years.

The S&P 500 has been showing positive returns for the past 3 years. In the past year Gold has outperformed the S&P 500 by 4.2%. With an average 1.7% dividend yield on the S&P 500 stocks which had a better TOTAL return?

Gold = Green         S&P 500 = Blue

For the past two years Gold has outperformed the S&P 500 by 6%. With average dividend yield of 1.8% for the first year and 1.7% the second year on the S&P 500 stocks, which has a better TOTAL return?

Gold = Green         S&P 500 = Blue

For the past 3 years Gold has outperformed the S&P 500 by 13.4%. With an average dividend yield on the S&P 500 stocks of 2% the first year, 1.8% the second year, and 1.7% the third year, which had a better return?

Gold = Green         S&P 500 = Blue

If you invested $10,000 in Gold or the S&P 500 three years ago with dividends on the S&P 500 stocks re-invested would you have more money with Gold or the S&P 500?

This is with Gold and the S&P 500 performing positive. It is not a worst case scenario for the S&P 500 (2000) or Gold (1980). It is the recent past. You may LOL or throw a gold shill name around if you like but Gold has outperformed the S&P 500 the past 3 years.

[Petronski]

Looks like a very reliable source of knowledge:

Edited with an Introduction by Llewellyn H. Rockwell, Jr. Copyright © 1992.

All you need is an foreword by Lyndon LaRouche and an afterword by Justine Raimondo.

[Petronski]

If you invested $10,000 in Gold or the S&P 500 twenty-five years ago with dividends on the S&P 500 stocks re-invested would you have more money with Gold or the S&P 500?

[Toddsterpatriot]

Since your dollars have no intrinsic value, they are subject to currency market fluctuations

And of course under the gold standard we had no fluctuations. LOL!!

Every time new dollars are printed and the money supply increases, your income and savings are worth less.

That's untrue. If the economy produced 4.3% more stuff but the money supply only grew by 3.3%, your income and savings would be worth 1% more.

Inflation is nothing more than government counterfeiting by the Fed printing presses.

Inflation is a monetary phenomenon. I wouldn't call it counterfeiting. And perhaps Paul would prefer deflation? Maybe he should ask Japan how that's worked out for them since 1990?

[simon says what]

If you invested $10,000 in Gold or the S&P 500 twenty-five years ago

I was twelve years old... my paper route money covered only basic expenses back then.

[Petronski]

Cop out.

[simon says what]

Cop out.

I post charts and returns from the past 3 years showing Gold has outperformed the S&P 500 with dividends re-invested and you ignore it by referencing the peak gold price back in 1980? Cop out? Please, try acknowleding Gold has ouperformed the S&P 500 with dividends reinvested TOTAL return the past 3 years then we can talk. You are good at laughing and throwing insults around... I'll give you that much.

[Toddsterpatriot]

[frgoff]

Footnote 12 invalidates the author's entire argument and he doesn't even see it. As silver and gold fluctuated in demand, the feds constantly re-defined how much gold a dollar was worth. In other words, the DOLLAR was treated as the constant, and the gold was treated as the variable.

This is because the true wealth of a nation is its manufacture and trade, NOT how much gold it has in its treasury. Money is simply the method whereby the value of trade is quantified among people whose items of trade do not coincide to the point where a barter system is possible.

For example, I write software manuals for a living. That is a skill I cannot barter for a new car. However, I can barter that skill for a company that makes software. That company can then barter with others who are interested in their product.

Money, whatever form it takes, allows us to create a common denominator that is valid for trade irrespective of whether the buyer and seller have skills or materials the other desires.

The car maker does not desire my writing skills, but he WILL take my money, which is a UNIVERSAL barter for my skills. I have bartered my skills to someone who IS interested for this UNIVERSAL barter. I can then take it and use it to barter with someone who has no interest in my particular skills.

When you understand this, you understand that the value of money is determined not by the paper it is printed on nor the gold that may back it but on the perceived worth of labor by those engaged in trade of those labors and products of that labor.

[Petronski]

Gold is supposedly a storehouse of value, yet the only claim you can make to that effect is one specific, short period.


The fever pitch of goldbuggery was pretty high in 1980 too. What happened to the people who were goaded and suckered into buying then? Why are they so irrelevant to you? Why can't you admit that gold is only 55% of all-time high?

And since stocks are drifting around near their record highs, and gold is worth about half its record highs, how is it that gold barely outperforms stocks during your cherry-picked best-case scenario?



At least it's lustrous and shiny.

[Toddsterpatriot]

Oh, it's you.

What about 10 years ago? Looks like gold loses by 80%. Plus probably another 20% in dividends.

Can't thank you enough for that link.

[T. Jefferson]

If you invested $10,000 in Gold or the S&P 500 twenty-five years ago...

I was twelve years old... my paper route money covered only basic expenses back then.

Now I understand your gold bug blinders now. Short story. The week before the market crashed in 1987, it had a few mini-crashes. It was real volatile. The day before the crash, I sold every stock I held and put it in a gold fund. The only gold investment in my life. The market fell 22% on Monday, dwarfing 1929. I had a friend who had made millions selling puts the previous months. He lost $500,000 the week before the crash, and finally closed it all out also on friday. He would have been bankrupt that monday. The world stopped that day, people were beyond tears. I had to pinch myself and keep quiet...I cleaned up and made a ton. The next day I finally told a few friends, and sure enough, day 3 it plummeted and I sold the position for a small loss. I got greedy. Take their money, before they take yours. Target investing works. If you're a chartist, here's the most consistent way to make money. By the dow index Nov., sell it in March. Averages around 10% for 50 years now. Feeling lucky, buy the same only in out of the money call options.

[simon says what]

At least it's lustrous and shiny.

You forgot the sarcasm tag.

The fever pitch of goldbuggery was pretty high in 1980 too. What happened to the people who were goaded and suckered into buying then?

Probably the same thing that happened to the people who were suckered into the NASDAQ in 1998, 1999, and early 2000.

Why can't you admit that gold is only 55% of all-time high?

I haven't denied it if that is what your are implying but I will admit it if it makes you happy... Gold is roughly 55% off its highs. It is closer to 60% though.

And since stocks are drifting around near their record highs, and gold is worth about half its record highs, how is it that gold barely outperforms stocks during your cherry-picked best-case scenario?

The S&P 500 is approximately 80% of its all time high right now. I don't think the most recent three years could be considered cherry picking. I would call it recent past. Gold is ouperforming the S&P 500 with dividends re-invested. It is what it is... the beginning of a new bull market in precious metals and commodities in general and the beginning of a bear market/consolidation in the general stock market.

[Marxbites]

Bull

There would be NO Fed - their only purpose is to create more dollars for congress to spend as it devalues our own

[simon says what]

Oh, it's you.

Yeah, I've missed you to Todd. You're welcome for the link. Information fosters healthy debate.

What about 10 years ago? Looks like gold loses by 80%. Plus probably another 20% in dividends.

You can have 10 years ago and I'll take 1,2,3,4,5,6, and 7 years ago. We'll check back in a few years for numbers 8, 9, & 10.

[Toddsterpatriot]

Since the low in Gold in 1999 it has outperformed the Nas by 73%.

Since the Nasdaq low in October 2002...

The Nasdaq has outperformed gold by 30%.

[Petronski]

Probably the same thing that happened to the people who were suckered into the NASDAQ in 1998, 1999, and early 2000.

Ah yes, but unlike you and gold, I'm not here prosthelytizing about the sanctified storehouse qualities of the stocks in the NASDAQ. Stocks v. gold is your comparison, not mine. (And by the way, it only makes you look like more of a salesman, not less.)